Initiatives to support expansion of Bahrain’s capital markets

The Central Bank of Bahrain (CBB) has set out new rules on the issuance of securities as the kingdom looks to boost activity in its financial services sector.

The latest update to the CBB Rulebook, which provides regulatory guidance for the sector, was released at the end of December. Known formally as the Regulatory and Supervisory Module on Issuing and Offering of Securities and Sharia-compliant Sukuk (OFS module), the document contains comprehensive provisions for issuing securities, along with criteria for advisory service provider appointments.

Developed in consultation with industry partners, the OFS module seeks to bring Bahrain in line with global-standard best practice with regard to transparency and investor’s rights. The document should help make the country a “preferable centre” for securities issuance, according to the CBB.

Towards regional integration

In a move seen as a step forward on the path to regional market integration, the CBB will now accept applications from securities issuers in other GCC countries, provided they are prepared under the Council’s Unified Standards.

This followed an announcement in November that the Bahrain Bourse (BHB) and the Saudi Stock Exchange (Tadawul) had entered into a memorandum of understanding with the goal of enhancing cooperation between the two exchanges. The agreement will enable sharing of knowledge and expertise, as well as pave the way for future alignment of policies.

The OFS module will bring other important changes, including prospectus templates for various forms of securities. This should make listing cheaper and easier, as well as encourage more initial public offerings (IPOs).

The BHB’s most recent IPO was in 2011. While Zain Bahrain, the local subsidiary of Kuwait’s telco Zain, was scheduled to sell 15% of its shares on the exchange by the end of last year, it has yet to do so. In its fourth quarter financial statement, published in January, Zain said preparations for the IPO were ongoing.

Incentives to trade

In a 2013 interview with OBG, Fouad Rashid, the director of the BHB, said boosting the number of listings was one of two major issues the exchange would like to address – the second was increasing liquidity. Like many bourses in emerging markets, the volume of trading is light, discouraging international institutional investors.

The end of 2013 saw the roll-out of two initiatives to raise transaction levels. In November, bourse authorities said they were extending the length of the daily trading session by 30 minutes, to three and a half hours, effective December 1.

Shaikh Khalifa bin Ebrahim Al Khalifa, the deputy CEO of the BHB, said the decision to lengthen the session came “following a study of all factors that would have a positive effect on activity”.

In the wake of the announcement of the extended trading hours, the BHB launched its online trading incentive programme, an initiative to encourage brokers to offer online trading facilities and services to the investor community.

Benefits to brokers who participate in the programme include a reduction in the BHB’s take on broker commissions, which has been lowered from 20% to 15%. At the same time, the cap on commissions that can be charged on online trades was cut from 0.275% to 0.2% of the value of the transaction, with the broker and customer free to negotiate to split of this amount.

In line with its plans to encourage online trading, the BHB also now allows brokers licensed in other GCC countries to apply for membership to trade remotely, without a physical presence in Bahrain.

Even before the latest initiatives, trading activity on the exchange had started to pick up in 2013. The daily volume of shares traded increased to around 7.7m last year, up from 2.6m in 2012, according to data from the BHB.

Market performance also improved in 2013, as the All Share Index reached 1248.86, compared to 1065.61 a year earlier, an increase of more than 17%.

With new rules in place to facilitate the issuance of securities and an incentive programme to encourage trading both within Bahrain and abroad, activity on the stock market looks set to rise this year.

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